Energy Prospectus

Daniel Yergin was just interviewed on Bloomberg TV. He said crude oil could soon go to $90/bbl and he thinks U.S. natural gas prices will flop around in the $5 to $6 range, but weather will determine where natural gas prices go this winter..

Daniel Howard Yergin is an American author, speaker, energy expert, and economic historian. Yergin is vice chairman of IHS Markit, a research and information company which absorbed his own energy research consultancy Cambridge Energy Research Associates in 2004. He has authored or co-authored several books on energy and world economics, including the Pulitzer Prize–winning The Prize: The Epic Quest for Oil, Money, and Power, The Quest: Energy, Security, and the Remaking of the Modern World, and The New Map: Energy, Climate, and the Clash of Nations. Yergin's articles and op-eds on energy, history, and the economy have been published in publications such as The Wall Street Journal, The New York Times, The Washington Post, and the Financial Times. All of Yergin's books have been drafted in long-hand. Currently a director on entities such as the Council on Foreign Relations and the United States Energy Association, he is also a trustee of the Brookings Institution and a long-term advisor to several U.S. administrations, as well as chairman of the annual CERAWeek energy conference.

During the interview he said that the leaders of Europe need to "Rethink their energy policy". Europe moved away from fossil fuels before they had enough renewable energy and they don't seem to understand that wind and solar are unreliable. He also said that the U.S. has plenty of natural gas reserves, but not enough pipelines and that a cold winter could results in some very high natural gas prices in some areas.

Always keep in mind that oil prices are set by global supply/demand and natural gas prices are primarily based on regional supply/demand, but the impact of the natural gas shortages in Asia and Europe are impacting U.S. gas prices this year because we are exporting a lot more LNG than we did a year ago.

EQT CEO Toby Rice laid the blame for the developing world energy crisis, particularly Europe’s lack of access to natural gas, at the feet of radical environmentalists. If not for the radicals and their constant frivolous lawsuits blocking pipelines and LNG export facilities, such infrastructure would already have been built and would be providing abundant, cheap, clean-burning Marcellus/Utica natural gas to other regions of the U.S. and to Europe.

My HOPE is that voters wake up and send a clear message to Washington and all of the "Elites" that fly their private jets to Paris for those Climate Accord meetings that we need to "RETHINK" energy policy. I am sure we all want a clean environment, but an unbalanced energy policy that is anti-hydrocarbon and in love with wind and solar (which BTW are not as green as the wackos believe) will lead to lower standards of living and failing economies. The situation in Europe is really BAD, energy rationing and depending on Putin for home heating fuel is not a recipe for rising standard of living.

From Adam Rozencwajg
The IEA’s Role in the Coming Oil Crisis
10/ 08/ 2021

The foundation for the upcoming oil crisis is now firmly set in place. Despite recent hiccups related to the delta variant, the world is re-opening and global oil demand is recovering strongly. By the beginning of 2022, global oil demand should be making new highs. Non-OPEC oil supply has fallen by over 2 mm barrels per day from its 2019 peak and non-OPEC oil supply growth will turn negative as we progress through this decade. A structural gap will soon emerge between supply and demand. As early as Q4 of 2022, demand will approach world oil-pumping capability — a first in 160 years of oil history. The ramifications will be huge and the investment implications monumental.

The International Energy Agency’s (IEA) bombshell release of its “Net Zero By 2050” report on May 17th, 2021 added more fuel to the fire. In that report, the IEA aggressively recommended that the global oil and gas industry stop investing in their traditional upstream businesses. Instead, the IEA recommended capital should be redirected to other uses — primarily renewable energy projects.

The IEA was established by the industrialized nations to carefully monitor and ensure the security of oil supplies after the 1973–1974 oil crisis. Preventing oil shocks caused by unanticipated and severe oil supply disruptions, was its primary goal. In the May 17th paper, Dr. Fatih Birol reiterated the IEA’s primary purpose: “Since the IEA’s founding in 1974, one of its core missions has been to promote secure and affordable energy supply to foster economic growth.” How ironic it is that an agency, originally trusted with the encouragement of oil supply security, is now aggressively adopting policies that will severely hinder the security of those supplies. The IEA’s policies will produce outcomes exactly at odds with its original charter.

The irony is stunning and the unintended consequences will be far reaching.

The biggest unintended consequence is clearly and ironically alluded to in the IEA’s own May 17th press release. The IEA states: “The contraction of oil and gas production will have far-reaching implications for all the countries and companies that produced these fuels. Supplies become increasingly concentrated in a small number of low-cost producers. OPEC’s share of a much-reduced global oil supply grows from around 37% in recent years to 52% in 2050, a level higher than at any point in the history of oil market.”

Back in the early 2000s, we became very bullish on oil prices. Leigh Goehring (Adam's partner) was profiled in Barron’s February 9th 2004 edition in an article titled: “Pumped Up: A Natural Resource Maven Sees a Long-Term Bull Market for Oil.” In the profile, I stated: “We’re just beginning to see a noticeable slowdown in non-OPEC supply of oil, which is bound to press more power into the hands of the oil cartel.” At the time, oil stood at $35 per barrel. Four years later, oil had eclipsed all expectations and surged to $145. What explained the four-fold surge in less than five years? In retrospect, the answer is simple: after a dramatic slowdown in non-OPEC oil supply growth, OPEC gained market share and pricing power.

In 2004, non-OPEC oil supply was set to experience a sharp slowdown in growth. Supply from some of the world’s largest producing fields and regions (Prudhoe Bay in Alaska, Cantarell in Mexico and the North Sea) were all exhibiting accelerating production declines while the great US oil shale boom was still half a decade away. As a result, non-OPEC oil supply experienced no growth between 2003 and 2008. Over that period, we wrote repeatedly to our investors: “Remember, the biggest competitor to OPEC oil is non-OPEC oil and when the growth of non-OPEC slows, OPEC gets pricing power.”

Between 2002 and 2008, OPEC’s market share of global production went from 38% to 43%. This small increase in market share resulted in huge OPEC pricing power allowing crude to advance four-fold in five years. The same chain of events that started in 2004 is about to be repeated with a vengeance.

The IEA’s policies will accelerate the huge slowdown we are about to experience in non-OPEC oil supply growth. Just like what happened between 2003 and 2008, OPEC will gain market share and pricing power — a situation the IEA acknowledges and even seems to be encouraging.